Is Russia circumventing the sanctions on gold via Dubai?

By: Frank Knopers 

Switzerland imported much more gold from the United Arab Emirates in March than in previous months. Net gold was 35.5 tonnes, the highest volume in a month since August 2016. According to the Swiss non-profit organization Swissaid, this could mean that Russia export gold to Europe via this route and thus try to circumvent sanctions.

Since the start of Russia's invasion of Ukraine, Western countries have imposed a wide range of sanctions on Russia. Most of the sanctions relate to impeding the flow of funds. Think of the disconnection of Russian banks from the SWIFT payment system. Also, European countries have imposed restrictions on the import of oil from Russia. Less well known is that sanctions have also been imposed on the gold trade, as we described earlier in This article.

Sanctions against Russian gold

At the beginning of March, the London Bullion Market Association (LBMA) pulled the accreditation of six major Russian smelters. This meant that from that moment on, almost all new gold bars from Russia were no longer accepted in London, an important hub in the international gold market. This is despite the fact that during the corona pandemic Russia large amounts of gold were still being sent to the United Kingdom Exported. Gold that was in great demand among investors, who were massively looking for a safe haven due to the corona crisis and low interest rates.

Due to the LBMA's sanctions policy, Russia can no longer export its gold directly to London. This is despite the fact that the gold mining sector of Russia is the second largest in the world with more than 330 tonnes per year and there is still a lot of demand for the precious metal worldwide. That means gold will now find a different route. For example, via the United Arab Emirates, as the graph below suggests.

Does Russian gold arrive in Switzerland via Dubai?

Dubai

Dubai, located in the United Arab Emirates, has developed into a major hub for the international gold market in recent years. It is the place where a lot of gold from African mines goes to be refined. The melted gold then goes via Dubai airport to important markets in Europe, the Middle East and Asia. As we wrote earlier, and as statistics from the Swiss customs suggest, Russia also seems to be using this route now.

According to the non-profit organization Swissaid, this development calls for more transparency in the gold market. In this way, it should become clear whether Russian gold will not end up in Switzerland via a detour, where it can be melted down by a smelter that is not on a sanctions list. "Switzerland and the smelters have a duty to do everything possible to prevent it from becoming an escape route for Russian gold via the United Arab Emirates", Marc Ummel of Swissaid told Swissinfo.

What does this mean for the gold market?

As long as there is a demand for gold, traders will continue to look for alternative routes to market Russian gold as well. By melting down the Russian gold in Switzerland or Dubai, it can no longer be traced back to Russia. After that, it can enter the European market. And even if the sanctions were watertight, Russia could always sell its gold to other countries. Think of China and India, the largest markets for gold. We will continue to monitor these developments.

This contribution comes from Geotrendlines

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